2022q4
Regional eXplorer (ReX) update – 4th quarter of 2022
S&P Global is glad to announce the fourth quarter update for 2022 of Regional eXplorer (ReX) – the South African knowledge base of municipal-level insight. Each quarter, data from a vast number of sources are incorporated into the ReX database to provide users with the most up-to-date statistics.
In this newsletter:
- South Africa's real GDP should expand by 1.9% in 2022
- South African Macroeconomic outlook
- Main data release incorporated in this update
South Africa’s real GDP should expand by 1.9% in 2022.
A bounce-back in real GDP was experienced in the third quarter of 2022. This is after a period of slowdown in economic activity by 0.7% d
uring the second quarter, caused by severe floods in the KwaZulu-Natal (KZN) province and more frequent and longer electricity disruptions. However, it is expected that in 2023 the real GDP will slow down to a rate of 1.4%.
Overall, the Northern Cape saw the highest increase in its GDP between quarter 2 and quarter 3 however still contributes the least to the National total. After the severe floods experienced in quarter 2, KwaZulu-Natal had a growth in their GDP of 2.1% in the third quarter.
The Agriculture, forestry, and fishing sector had the highest industry growth rates between quarter 2 and quarter 3, with a 19.2 % increase. In contrast, both Personal Services and Electricity, gas & water experienced decreases in their economic activity for quarter 3. Overall, the primary sector industries saw the greatest growth in GDP of 8.2% with secondary and tertiary reporting a growth of 1.2 and 1.1%, respectively.
The bounce back in GDP can be considered sluggish as the disposable income of households will continue to suffer from high food and fuel inflation in addition to increases in interest rates. Growth in fixed investment should continue, a result of ongoing pent-up post-COVID-19 demand. The easing of imports could support the net trade contribution during the third quarter.
South African Macroeconomic Outlook
The rand exchange rate for 2022 will likely end at ZAR18.00-18.30/USD1.00. This is weaker than expected. In November, the rand strengthened against the US dollar at an average of ZAR 17.58/USD1.00. This underlined the rand’s resilience and should support the currency until the end of 2022. In the medium term, price differentials with the rest of the world, movements in commodity prices, the current-account deficit, and the level of international reserves will determine the rand’s level. South Africa has a high import propensity of 28.0% of GDP, which, with its slow-developing and relatively fragile export markets, should keep external accounts in the red and place downward pressure on the rand.
The South African government announces far-reaching energy reforms that could unlock additional electricity supply over the medium term. The South African government announced a series of policies to address the country’s electricity deficit. Solutions to state-power-provider Eskom’s operational instabilities have been put into action, while the allocation of the next renewable procurement round has been doubled from 2,600 megawatts (MW) to 5,200 MW. Additionally, a landmark government announcement of a lift in the licensing threshold for small-scale power generation projects from 1 MW to 100 MW. This will unlock private investment in the renewable energy segment of the economy from 2023. Eskom’s primary focus on stabilization policies consisted of an increase in Eskom’s maintenance budget, the appointment of capable and skilled leadership at the power stations and seeking solutions to Eskom’s ZAR400-billion debt. Although the recently announced measures will not have an immediate impact on South Africa’s dire electricity backdrop, prospects of medium-to-longer-term added capacity to the grid have improved.
Stemming the slide of South Africa’s economic regression. South Africa’s inequality is deepened by a weak economic backdrop leaving many dismayed by the ruling party, African National Congress (ANC). With the up-and-coming 2024 elections, the party faces the increasing possibility of losing its majority. However, the party has made progress in 2022 in addressing the economic slide that was experienced in years prior.
South Africa’s long-term growth potential is constrained by structural impediments that are exacerbated by the impact of the COVID-19 pandemic. Contributors to a potential growth rate – namely labor, capital, and productivity have shown lackluster performances. Labor force participation is constrained by a highly unionized labor market, which allows for limited labor market flexibility, while the education system’s lack of efficiency increasingly pushes more uneducated entrants into the labor market. This results in a huge demand-supply mismatch continuing in the labor market despite a worrying unemployment rate of close to 30%. deteriorating business environment marred by red tape, stringent economic empowerment policies, uncertainty over future property rights, and increased corruption pulled South Africa down on the World Bank’s ease of doing business ranking. The country now ranks 84th among 190 economies in 2020, from a ranking of 35 in 2011.
Downside risks in the South African economy remain prevalent in the short term. Possible swings in the global portfolio away from emerging markets to developed economies, along with electricity supply deficits and the introduction of populist policies, add near-term risk factors. Social unrest continues to flare up and disrupt business operations. Public-sector debt levels escalate above current expectations, triggering further sovereign credit risk downgrades by international rating agencies, crowding out public investment, and deterring long-term growth prospects. Populist” policies such as land redistribution disrupt the agricultural production supply chain and jeopardize property rights in the South African economy. Ongoing adverse weather conditions pose an additional threat to low food prices, hence risks raising inflation and lowering purchasing power—with particularly dismal consequences for low-income households. On the upside, the South African government may launch a series of reforms and policy actions to address the weaknesses in the education system, loss in international competitiveness, the mining charter, and financial viability. The growth of the South African economy and exchange rate are set to improve due to international commodity prices moving above the baseline outlook. Additionally, the South African government has been partially successful in attracting USD 100 billion in local and foreign investments over the next five years. This includes electricity-generating investment in renewable programs.
Main data release incorporated in this update
This ReX release has been updated with the latest data available from StatsSA, including the quarterly labor force survey and quarterly GDP release. The official release includes the latest SARB Quarterly bulletin as well as a number of smaller data releases coming out over the 2022 festive period.
In the latest release, Quarterly Crime data has been added. The data covers the timeline of 2017 quarter 2 to 2022 quarter 3 and consists of the reported crimes and crime rates per 100,000 people broken down by crime categories. Feel free to let us know if you find this interesting and helpful. Based on feedback we will update the crime charts and indices to a quarterly frequency.
Between the financial years 2017/2018 and 2020/2021 there was a downward trend in the crime rates with the lowest rate in 2020/2021. Post-Covid there the reported crime rate has increased; however, the 2021/2022 reported crime rate remains lower than pre-Covid years. The Western Cape demonstrates a significantly higher reported crime rate across all years than the other eight provinces.
The quarterly break down shows a more granular look at the reported crime rates for the nine provinces. Regions experienced periods where there were slight increases in crime however 2020 quarter 2 had the largest decrease in the number of crimes that were reported to police stations. The crime rates per 100,000 people returned to the normal in the fourth quarter of 2020. It appears that quarter three of 2022 all the provinces in South Africa experienced a growth in the reported crime rates.
Enjoy the update!
The S&P Global ReX team